A Guide For

Protect Yourself Against

Investment Fraud

P R E PA R E D B Y T H E O F F I C E O F I N V E S T O R E D U C AT I O N A N D A D V O C A C Y

A Guide For

Protect Yourself Against

Investment Fraud

A GUIDE FOR SENIORS PREPARED BY THE OFFICE OF

INVESTOR EDUCATION AND ADVOCACY

How To Avoid Fraud

Seniors are often the target of fraud. However, with some
basic understanding of how scam artists work, you can
avoid fraud and protect your hard-earned money. Learning
how to invest safely can mean a huge difference in your
retirement years.
Seniors are particularly vulnerable to tactics of scam artists
who are nice or attempt to develop a false bond of friendship. Scam artists prey on seniors who are polite to others
and have difficulty saying no or feel indebted to someone
who has provided unsolicited investment advice.

WHAT CAN I DO TO AVOID BEING SCAMMED?

Ask questions and check out the answers.

Fraudsters rely on the fact that many people simply dont
bother to investigate before they invest. Its not enough to ask
a promoter for more information or for referencesfraudsters
have no incentive to set you straight. Savvy investors take
the time to do their own independent research and talk to
friends and family first before investing. Make sure you understand the investment, the risk attached, and the companys history. And remember, if the product sounds too good
to be true, it is!
A GUIDE FOR SENIORS

Research the company before you invest.

Youll want to fully understand the companys business and
its products or services before investing. Before buying any
stock, check out the companys financial statements by using
the SECs EDGAR database at www.sec.gov/edgar.shtml, or
contact your state securities regulator. Remember that unsolicited emails, message board postings, and company news
releases should never be used as the sole basis for your investment decisions.

Know the salesperson.

Spend some time checking out the person touting the investment before you investeven if you already know the person
socially. Always find out whether the securities salespeople
who contact you are licensed to sell securities in your state
and whether they or their firms have had any troubles with
regulators or other investors.You can check out the disciplinary history of brokers and advisers quicklyand for free
using the online databases of the SEC and the Financial Industry Regulatory Authority (FINRA). Your state securities
regulator may have additional information.

Never judge a persons integrity by how he or she

sounds.
Successful con artists know how to sound professional. They
can make even the flimsiest deal sound like a sure thing.
Con artists know that the appearance of professionalism
combined with polite manners or overtures of friendship
may lead many older investors to accept their advice.

Watch out for salespeople who prey on your fears.

Con artists know that many seniors worry about the adequacy of their retirement savings, especially if they are faced
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OFFICE OF INVESTOR EDUCATION AND ADVOCACY

with costly medical expenses. As a result, fraudsters know

to pitch their schemes as a way to increase the older investors financial security to the point where such fears are no
longer necessary.

Take your timedont be rushed into investment

decisions.
Just because someone you know made money, or claims to
have made money, doesnt mean you will too. Be especially
skeptical of investments that are pitched as once-in-a-lifetime opportunities, particularly when the promoter bases the
recommendation on inside or confidential information. Remember that a fraudster does not want you to think too much
about the investment because you might figure out the scam.

Be wary of unsolicited offers.

Be especially careful if you receive an unsolicited fax or email
about a companyor see it praised on an Internet bulletin
boardbut can find no current financial information about
the company from other independent sources. Many fraudsters use email, faxes and Internet postings to tout thinly
traded stocks, in the hopes of creating a buying frenzy that
will push the share price up so that they can sell their shares.
Once they dump their stock and quit promoting the company, the share price quickly falls. And be extra wary if someone you dont know and trust recommends foreign or offshore investments. When you send your money abroad, and
something goes wrong, its more difficult to find out what
happened and to locate your money.

Dont lose sight of your investments.

Dont rely on a financial professional who says leave everything
to me.Always monitor the activity on your account and request
A GUIDE FOR SENIORS

regular statements.You should never feel uncomfortable about

questioning any trading activity that you dont understand. Rememberits your money. You also should keep all records of
conversations that you have about any of your investments.

Question why you cannot retrieve your principal or

cash out your profits.
If your broker, financial adviser or other person with whom
you have invested your money stalls when you request your
principal or profits, this may be because that person has already pocketed your money. Dont be fooled by explanations
as to why your money is inaccessible or by suggestions that
you roll over your profits into other investments.

Never be afraid to complain.

If you suspect fraud or a questionable practice and the explanations that you receive are not satisfactory, do not let
embarrassment or concern that you will be judged incapable
of handling your own affairs prevent you from filing a complaint with the SEC, FINRA, or your state regulator.

WHERE TO CALL FOR HELP

SEC: (800) 732-0330
FINRA BrokerCheck: (800) 289-9999
State Regulators: (202) 737-0900

OFFICE OF INVESTOR EDUCATION AND ADVOCACY

HERE ARE SOME RED FLAGS WARNINGS OF FRAUD:

If it sounds too good to be true, it is. Compare promised
yields with current returns on well-known stock indexes.
Any investment opportunity that claims youll get substantially more could be highly risky. And that means you
might lose money.
Guaranteed returns arent. Every investment carries some
degree of risk, and the level of risk typically correlates with
the return you can expect to receive. Low risk generally
means low yields, and high yields typically involve high
risk. If your money is perfectly safe, youll most likely get
a low return. High returns represent potential rewards for
folks who are willing and financially able to take big risks.
Most fraudsters spend a lot of time trying to convince investors that extremely high returns are guaranteed or
cant miss. Dont believe it.
Beauty isnt everything. Dont be fooled by a pretty website
they are remarkably easy to create.
P
 ressure to send money RIGHT NOW. Scam artists often
tell their victims that this is a once-in-a-lifetime offer, and
it will be gone tomorrow. But resist the pressure to invest
quickly, and take the time you need to investigate before
sending money. If it is that good an opportunity, it will wait.
Con artists are experts at gaining your confidence. So be
certain to treat all unsolicited investment opportunities with
extreme caution. Whether you hear about the opportunity
through an email, phone call, or a fax, be certain to check
out both the person and firm making the offer and the investment they are pushing.
A GUIDE FOR SENIORS

Types of Fraud
PONZI AND PYRAMID SCHEMES
These investment scams are essentially robbing one person
to pay another. Initial investors are paid off with money
taken from new investors. As long as a steady flow of new
investors keeps coming in, there will be money to pay off
the old investors. This early return on investment is misleading, however, because when the new investors stop coming
in, the scheme collapses, investors lose their money, and the
fraudsters walk away rich.

OIL AND GAS SCAMS

If you think youve found the right oil or gas investment to
strike it rich, consider this: it may be a scam. While some
oil and gas investment opportunities are legitimate, many
oil and gas ventures are frauds. Many of these schemes start
in so-called boiler rooms, where skilled telemarketers use
high pressure sales tactics to convince you to hand over
your hard-earned money. The oil and gas industry is often
in the news, and this publicity can be used to lure potential
investors and make opportunities sound legitimate.

OFFICE OF INVESTOR EDUCATION AND ADVOCACY

PROMISSORY NOTES
A promissory note is a form of debtsimilar to a loan or an
IOUthat a company may issue to raise money. Typically,
an investor agrees to loan money to the company for a set
period of time. In exchange, the company promises to pay
the investor a fixed return on the investment.

A GUIDE FOR SENIORS

While promissory notes can be legitimate investments, those

that are marketed broadly to individual investors often turn
out to be scams. Investors should be careful to determine
their legitimacy and should seek the advice of an objective
third party when in doubt.

PRIME BANK FRAUD

In a prime bank scheme, fraudsters often claim investors
funds will be used to purchase and trade prime bank financial instruments or other high yield investment programs (HYIPs) on clandestine overseas markets in order
to generate huge returns in which the investor will share.
However, neither these instruments, nor the markets on
which they allegedly trade, exist. To give the scheme an
air of legitimacy, the promoters distribute documents that
appear complex, sophisticated and official. The sellers frequently tell potential investors that they have special access
to programs that otherwise would be reserved for top financiers on Wall Street, or in London, Geneva or other
world financial centers.

HIGH RETURN OR RISK FREE INVESTMENTS

Some unscrupulous investment advisers make unsuitable
recommendations to purchase investment products that
dont meet the investment objectives or means of an investor.
Unsuitable recommendations might occur when a broker
sells speculative investments such as options, futures or penny
stocks to a 95-year-old widow living on a fixed income with
a low risk tolerance. Investors should be careful to review the
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OFFICE OF INVESTOR EDUCATION AND ADVOCACY

risk profile of each investment recommendation and should

seek the advice of an objective third party when in doubt.

INTERNET FRAUD
Internet investment frauds mirror the frauds perpetrated
over the phone or through the mail. Remember that fraudsters can use a variety of Internet tools to spread false information, including bulletin boards, online newsletters, spam,
or chat rooms. They can also build a glitzy, sophisticated
web page. All of these tools cost very little money and can
be found at the fingertips of fraudsters.

A GUIDE FOR SENIORS

Senior Specialists and Advisors:

WHAT YOU SHOULD KNOW ABOUT
PROFESSIONAL DESIGNATIONS
Some financial professionals use designations such as senior
specialist or retirement advisor to imply that they are experts at helping seniors with financial issues. Many seniors,
however, dont understand the titles or the sets of initials
that may follow the names of these financial professionals.
The education, experience, and other requirements for receiving and maintaining a senior designation vary greatly.
In some cases, a financial professional may need to study and
pass several rigorous examsafter working in a designated
field for several yearsto receive a particular designation. In
other cases, it may be relatively easy in terms of time and effort to receive a senior designation, even for an individual
with no relevant experience.
If you want to find out more about a particular professional designation, check out the Understanding Investment Professional Designations page on FINRAs
website, www.finra.org/investors. The page provides the
education and experience requirements for many professional designations. In addition, you can find out whether
the granting organization for a particular designation requires continuing education, offers a public disciplinary
or investor complaint process, or provides a way to check
the status of a financial professional. Keep in mind that
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OFFICE OF INVESTOR EDUCATION AND ADVOCACY

neither FINRA nor the SEC endorses any professional

designation.
Even after doing some research, it may not be clear to you
whether a professional designation represents legitimate expertise, a marketing tool, or something in between. Thats
one reason you should always look beyond a financial professionals designation and determine whether he or she can
provide the type of financial services or product you need.
We encourage you to thoroughly evaluate the background
of anyone with whom you intend to do businessbefore
you hand over your hard-earned cash. You also should ask
questionsthats the best advice we can give you about how
to invest wisely. We see too many investors who might have
avoided trouble and losses if they had asked basic questions
from the start.
A GUIDE FOR SENIORS

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Where to Go for Help

SEC OFFICE OF INVESTOR EDUCATION AND ADVOCACY

If you encounter a problem with an investment or have a
question, you can contact the SECs Office of Investor Education and Advocacy at:
Securities and Exchange Commission
Office of Investor Education and Advocacy
100 F Street, N.E.
Washington, D.C. 20549-0213
Telephone: (800) 732-0330
Fax: (202) 772-9295
You also can send us an online complaint form at www.
sec.gov/complaint.shtml or email us at help@sec.gov.

ADDITIONAL SEC RESOURCES

In addition to the investor education material discussed
elsewhere in this Guide, the SEC website includes databases that allow you to begin your investigations about
potential investments.

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OFFICE OF INVESTOR EDUCATION AND ADVOCACY

You can check our EDGAR database for filings filed by

registered securities issuers and mutual fund companies,
www.sec.gov/edgar.shtml. Available filings include registration statements, proxy materials, and periodic reports. If
a company is exempt from the SECs registration requirements, EDGAR often references the Form D (notice of
exemption) provided by the issuer.You can obtain a Form
D by calling (202) 551-8090.
Our online brochure Protect Your Money: Check Out
Brokers and Investment Advisers, available at www.sec.
gov/investor.shtml, links to the Investment Adviser Public
Disclosure website (IAPD). This database includes the registration statements filed by investment advisers registered
with the SEC and in certain states.
If you have been a victim of a scam, you can check the litigation section of the SECs website, www.sec.gov/litigation.shtml,
for information about any SEC actions or any investors claims
funds.

STATE REGULATORS
While the SEC regulates and enforces the federal securities
laws, each state has its own securities regulator who enforces
what are known as blue sky laws. These laws cover many of
the same activities the SEC regulates, such as the sale of securities and those who sell them, but are confined to securities sold
or persons who sell them within each state.
In addition, your state securities regulator can tell you whether
the investment is registered and if the broker and the brokers

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firm are licensed to do business in your state.Your state regulator also can check the disciplinary history of a broker or
brokerage firm. Similarly, your state regulators can tell you
whether an investment adviser is registered with them.
You can find out who your state securities regulator is by
visiting the website of the North American Securities Administrators Association, Inc. (NASAA) at www.nasaa.org or
by calling (202) 737-0900. In addition, NASAAs website
includes investor information devoted to seniors.

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OFFICE OF INVESTOR EDUCATION AND ADVOCACY

Financial Industry Regulatory Authority (FINRA)

FINRA, a self-regulatory organization, also regulates
the brokerage industry. If you have a complaint against a
FINRA member firm or one of its employees, you can file
a complaint at:
FINRA Investor Complaint Center
1735 K Street NW
Washington, DC 20006
Fax: (866) 397-3290
You also can file an online complaint by going to www.
finra.org.
You can verify registration and disciplinary information
about an individual broker or brokerage firm by using
FINRA BrokerCheck, www.finra.org/brokercheck. You
also can call them toll-free at (800) 289-9999.
FINRAs website includes investor resources as well as an
investors claims fund page.

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SEC Publications and

Online Materials
You can order a copy of this and the following brochures
online by visiting: Publications.USA.gov and entering the
term USSEC in the search field. These publications are also
available in Spanish.
Ask Questions: Questions You Should Ask About Your
Investments
Saving and Investing: A Roadmap to Your Financial Security Through Saving and Investing
Mutual Funds: A Guide for Investors
Variable Annuities: What You Should Know

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OFFICE OF INVESTOR EDUCATION AND ADVOCACY

THE INTERNET
The SEC has a page on its website devoted specifically to
senior citizens: www.sec.gov/investor/seniors.shtml. This
page provides links to critical information on investments
that are commonly marketed to seniorsincluding variable annuities, equity-indexed annuities, promissory notes,
and certificates of deposit. It also warns against the dangers
of listening to the sales pitches of cold-callers and alerts
seniors to the very real threat of affinity fraudscams that
prey upon members of identifiable groups, such as religious
or ethnic communities, professional groups, or the elderly.
You can also use www.investor.gov, the SECs website dedicated to individual investors.

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The Office of Investor Education and Advocacy has

provided this information as a service to investors. It is
neither a legal interpretation nor a statement of SEC
policy. If you have questions concerning the meaning
or application of a particular law or rule, please consult
with an attorney who specializes in securities law.

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OFFICE OF INVESTOR EDUCATION AND ADVOCACY

1-800-732-0330
www.investor.gov

SEC Pub. 144 (5/13)